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    Bonds: Carrying value & Interest expense

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    A company issues $5,000,000, 7.8%, 20-year bonds to yeild 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $4,901,036.

    (a) Using effective-interest amortization, what will the carrying value of the bonds be on the December 31, 2007 balance sheet?

    (b) With the same information applying, except the bonds were issued on January 1,2006 (rather than 2007), what is the interest expense for 2007, using straight-line amortization?

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    Solution Summary

    The solution examines bonds carrying value and interest expenses. The solution uses effective-interest amortization to determine the carrying value of the bonds.